Modern Times Group MTG AB (publ)

Good day. Thank you for standing by. Welcome to today's Modern Times Group Q1 2021 Interim Results Conference Call. At this time, our participants will be in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, should you wish to ask a question, you will need to press star and the number on your telephone and wait for an interview to be announced. Please be advised that today's call is being recorded Thursday, the 29th of April, 2021. And I would now like to hand the conference over to our first speaker for the day, Sir Lars Thorstensen. Please go ahead, sir.

Thank you, operator, and good afternoon, and welcome to NTG's interim report presentation for the first quarter 2021. As said, my name is Lars Thorstensen, and I'm the CFO and also EVP of Communications and Investor Relations at NTG. With me today, I have our group president and CEO, Maria Rudin. We will begin by presenting the quarter and then take your questions in the Q&A session. Please keep in mind that only dialing participants can ask questions. With that said, I'm now handing over to you, Maria, to take us through the quarter.

Thank you, Lars, and welcome to everyone joining our conference call. Our first quarter for 2021 has been intensive, both from an operational and an M&A perspective. And while we've seen solid progress in Australia during the quarter, both relating to our gaming vertical and our esports one, we have also continued to be impacted by the pandemic circumstances, such as restrictions to international travel and the continued limitation on hosting of events affecting our esports business. But it's not just about the business. I would like to take the opportunity to thank all our teams across esports and gaming for the effort and great spirit. You've stayed focused and motivated despite very tough circumstances, and for that I'm very grateful. So let me now take you through the presentation, and afterwards I look forward to taking your questions. Our results for the first quarter were mixed because the pandemic continues to negatively impact our esports business. Our game in vertical performed well, showing increased user engagement with our expanding portfolio of titles. During the quarter, we've seen InnoGames soft launch the new city builder title, Rise of Cultures, on the U.S. market, and later in April, also on the European market. The results of the new game has shown promising results across several important KPIs. And additionally, Hush has also released its new title, Puzzle Heights, at the end of the quarter. Overall, the new games pipeline has continued to progress according to plan, which I will come back to later. Our esports vertical continues to be impacted by the postponed return of live audience events, and the short-term visibility remains low. As a consequence, we are experiencing longer decision-making processes from brand sponsors, and also recorded delayed signing of a small number of anticipated larger sponsorship contracts. Most of these contracts have now been closed in Q2. Also, on back on emerging trends and learning from the pandemic, we have accelerated strategic and operational investments in our esports product portfolio to strengthen our position, diversify our current offering, and broadening our addressable markets. I'm very excited about these new investments, as they will be setting us up for a position of strength as we continue to navigate towards a normalized operating environment, which we hope to see in the late in 2021. Last but not least, we continue to keep high M&A momentum in Q1, during which we announced the agreement to acquire yet another impressive gaming company, Ninja Kiwi, to our growing gaming vertical. The acquisition builds on our ambition to further diversify our gaming group with more stronger and stronger evergreen IPs. More to come on that. So if you'd like to move to the next slide. Let's start off reviewing the gaming vertical performance in the first quarter. First of all, We are very excited about the gaming vertical that we are building, containing strong studios such as InnoGames, Hutch, Kongigate, and now also Nida Kiwi. Together, we will be able to leverage on each other's strengths and benefit from collaboration on UA, LiveOps, and BI. Additionally, MTG now has a much more diversified games portfolio stretching between different genres and life cycles, and with a solid pipeline of new games that can be introduced across 2021 and 2022. As a result of the clear benefits of being a joint gaming company, we've taken the first steps on knowledge sharing to ensure that we realize synergies between the different companies. It is still early days, but I'm very happy to see the pull effect we see and experience between the different management teams and the excitement that they have working together. I am certain that this, over time, will result in stronger vertical performance, better and more engaging games that resonate even stronger with our play bases. and that ultimately accelerates the value of the gaming pro as a whole. But let's move now on to the results. We're pleased to see just another good quarter delivered from our gaming vertical. In the quarter, net sales increased by 23% to $767 million. Foreign exchange rates had a negative impact on 9% in the quarter, resulting at a growth at concept FX of 32%, of which organic growth was 8%. InnoGames delivered solid operational performance in the quarter, with sales increasing across the existing game portfolio, driven by successful in-game events and marketing, yielding strong results for Portal Empire, but also strong performance in the portfolio of the classic games. In the quarter, we've seen Hutch deliver solid growth compared to last year's quarter, driven by its title top price. The Formula One manager game experienced a high level of seasonality, with players awaiting the launch of the Axios 2021, Formula One World Championship. As this is placed towards the end of the quarter, the title is expected to boost in downloads and also users in the beginning of Q2. Concrete performance in the quarter shows stable process despite the technical issues with the new Lelange Tennis Newton in the turtles. That is now all sold. And with the technical snag behind us, we will now be able to scale the game going forward, which we look forward to. Also as mentioned, in the quarter we saw a number of important milestones on the new game front. In February, InnoGames soft launched a new title, Rise of Culture in the U.S. Market, and with additional European markets being added now in April. The new title has shown promising results across several KPIs, and as an example, it is significantly outperforming Fortune Empire on its retention metrics, which is quite impressive. Additionally, the company has soft launched the other title, Lost Survivors, now in April. IndieGames will continue to now build gameplay across these two titles in soft launch, and we hope to look forward to full commercial release over the year, which then will also bring with it increased marketing investments in the quarters to come. In March, Hatch soft launch a new title, Passive Hype, and we're looking forward to seeing the continuous development and the impact of UA scaling of that title as well. Adjusted EBITDA in the quarter improved to $204 million, with a margin of 27%. The year-over-year improvement in margin was thanks to maintain high-level engagement across the portfolio. If you then move to the next slide, on March 24th, we announced the acquisition on IndieKiwi, a New Zealand-based leading mobile games developer and publisher. Their evergreen IP blooms is loved by millions of fans worldwide, and it played a pivotal role in the development of the entire Tao defense game genre. Their success today has been done solely through organic growth, which is impressive, And being now a part of our gaming vertical, we believe that there are more opportunities ahead through the collaboration of the other studios. But also with our esports vertical, and mobile esports in particular, as the community around the Blues title already today sets up their own competitions. Looking forward, the anticipated title, Battle 2, will be launched this summer, something that we're very excited about and look forward to support through our gaming company. The next step before Nidhikiv is a part of the MTG family, however, is the closing of the deal. and that we anticipate coming up now in Q2. If you can then move the page. Taking a holistic view of our gaming vertical, I can conclude that our portfolio titles through the acquisition of Hutch and IndieKiwi has become much more diversified, both when it comes to genre, titles, and different parts of the gaming lifecycle. Despite the difficulties brought about with the pandemic, not being able to work together at the office, co-creating and challenging each other, We've been able to progress according to plan. I'm impressed by how well our different gaming companies have been able to maintain productivity during these tough times. Hence, we have now an even more comprehensive new games pipeline with over 10 games in different stages of production. Our gaming world continues to grow with new companies, strong roots, and strong IPs, more talented people, and experienced minds. This spot is very well for the remainder of the year, during which we will both launch additional new games, scale up marketing, and continue to pursue relevant M&A opportunities. So you can then move on to the eSports vertical and firm page. Although eSports continues to be affected by the ongoing pandemic in the first quarter, we maintain a strong online schedule, relevance among fans, and continued commitment from our partners. Net sales from esports vertical decreased 18% to CX 244 million, negatively impacted by foreign exchange rate of 8%. Organic growth for the quarter was negative 11%. This year, we were not able to hold any fiscal events compared to last year, when that was still possible actually in January and February. Further, publisher activations have been rescheduled to later part this year. As a result, we've seen low monetization from both publishers and brand partners due to the pandemic. In the quarter, ESL Gaming successfully delivered and produced three master properties as scheduled, all being produced online. Due to the pandemic and maintained low visibility, we do not expect live events to return in significant volumes before the end of the year. As a result, some brand sponsors are hesitant to commit contractually and are awaiting a return to normality. Hence, a small number of anticipated large sponsorship contracts did not materialize as expected in the quarter and were instead signed now early in Q2. Post-quarter end, we're pleased that ESL Gaming announced the strategic prolongation of its cooperation with Intel starting in 2022, which is a strong signal of confidence from our largest partner. Added to that, ESL Gaming recently announced extension of the sponsorship agreement with SAP and also the media partnership with DUIU. Additionally, strategic partnership with publishers remained very active in the quarter. For example, we strengthened our relationship with Activision Blizzard as ESL Gaming was awarded the official Hearthstone eSports program for the next two years. Additionally, Valve selected ESL Gaming as a partner for their CIS and EU Desert II DPC League. And post-quarter end, We also announced extended agreements with Epic Games, which allowed DreamHack to operate two different tournament structures on back of the Fortnite for the remainder of the year. ESL B2C businesses continue to experience sequential growth in the monthly active users on back of the ongoing pandemic and improved product features. The long-term goal is to elevate the B2C business. enabling it to become a more meaningful contributor and to improve diversification of ESL gaming's revenue streams by exploring new emerging trends within esports. What excites us is the broadening of esports concepts with the emergence of competitive gaming outside AAA titles. This is, of course, mobile mid-core we present with our mobile open, but it can also be the casual competitive gaming. This leads me to why we're now confident in investing for the future of esports. So if we then turn to the next page. Q1 2021 has also been a quarter of important and accelerated investments in the esports vertical to better position MTG for the future. These investments include continued expansions of ESL Gaming B2C and mobile esports products. It also involves the digitalization of traditional sports into esports products through the recently announced partnership with Bundesliga, NHL, and the International Olympic Committee. Additionally, investments were made in the quarter in preparation for expansion into new geographies and markets. Another key trend is the rise of casual competitive gaming platforms, which enable tournaments and competitions for casual mobile gamers. With our recent VC investment in Joyride, a new innovative casual competitive gaming platform, we secure access to a new B2C platform. Further, on back of our belief in mobile esports, we have also done a VC investment in MetaGames, which offers a mobile esports manager game to drive further engagement within the product. While these businesses and product investments are in line with our strategy for esports, the cost associated with them has impacted adjusted EBITDA for the vertical by approximately 25 million kroner for the quarter. At the same time, these investments, we are preparing our esports vertical for a mixed model of live events together with an enhanced online product proposition post the pandemic. We expect these emerging models to lead not just to faster growth and increased revenues, but also richer and more resilient commercial operations. Having said that, we will still continue to carry on pursuing operation efficiencies in our core esports business and also seek a new commercial and sponsorship agreement to drive improvements. With that said, I will hand over to Lars now and walk you through the financials.